The recent trading range of Remark Media (NASDAQ: MARK) shares does not reflect the current value of its assets and represents a complete disconnect from the latent value we see there. Remark currently has a market cap ($2.38/share) of $17m despite the fact that it owns several assets that alone might be worth $17m or more.
Remark still owns all of the assets that caused its predecessor company (HSW International) to achieve a $75m market cap back when valuations for such assets got kind of frothy, namely the content, domains and websites used for the "How Stuff Works" websites in China and Brazil. Remark was one of the original founders of Sharecare, where it developed the leading health and wellness social media platform and it still retains a 10.8% equity stake. Additionally, the company owns the rights to the technology and intellectual capital invested in the development of the Sharecare platform and the company has recently used that platform in partnership with TheStreet.com (TST) to create Dimespring.com, a personal finance social media platform that is growing rapidly. In 2012, Remark acquired Banks.com and all of its assets, including the Banks.com domain and website, IRS.com, Filelater.com and MyStockFund.com. We believe the lack of coverage (no analysts cover Remark) and the lack of promotional activity by management has caused Remark's valuation to go unnoticed and a disconnect has occurred as the price of the stock has fallen while the value of assets it owns has increased significantly over the last twelve months.
One year ago, Remark shares traded in the $4.50 - $6 range, as the company was in the process of acquiring the aforementioned Banks.com assets. The financial information available for Sharecare at that time was sparse, but we could ascertain from the SEC filings of shareholders that Sharecare was doing about $3m per quarter in revenue and a round of venture capital funding that occurred a few months previous had suggested a valuation for Sharecare that would have made Remark's stake in Sharecare worth something in the $4 - $5.50 range where Remark shares were then trading. Thus, the market cap of Remark in April of 2012 essentially accorded no value to the HSWI assets, the potential for growth of the Sharecare valuation or the potential for Remark to complete the Banks.com acquisition and use the technology behind the Sharecare social media platform to develop Dimespring.
Much has changed since April of 2012 for Remark, as its stock has fallen by 50% while a number of things were occurring that we believe makes the shares worth substantially more than they were last year. The completion of the Banks.com acquisition brought very valuable assets into the fold, including the IRS.com domain that last traded hands in 2007 for $11.1 million. The company launched Dimespring.com in beta in the fall of last year and then cut a deal with TheStreet.com to provide content (mostly Google network display and pay per click ads) and advertising across the Dimespring network, including Banks.com, IRS.com, FileLater.com etc. and we should get a feel for the potential of that network when the first full quarter of its operation (Jan. 1 - March 31, 2013) is reported next month. Most importantly, Sharecare has grown substantially over the last year and the few investors who are still watching Remark may have noticed in the 10k filing last week that Sharecare grew revenues by over 120% in 2012 vs. 2011. Though the losses increased, the increase was not as much as the increase in revenues and we believe the growth of Sharecare makes Remark's stake worth substantially more than it was when Remark shares were trading in the $4.50 - $6 range last April. Additionally, we think investors would do well to focus on what is likely to happen in the next 12 months instead of the last 12 months to get a better feel for the true value of Remark shares.
Is a Sharecare IPO Coming Soon?
Information on Sharecare has continued to be very hard to come by, but the intel we gained from Remark's 10k filing last week and what appears to be a resurgence in the market for smaller offerings leads us to believe that an IPO may be coming soon. Sharecare's revenue is up more than 120% over the levels it was generating back when the funding at the $230m+ valuation occurred back in 2011. The actual revenue growth figure for 2012 should actually be better than 120%, as the numbers given in the Remark 10k only covered through the month of November 2012 due to a change in Remark's accounting treatment of its stake in Sharecare. What we can ascertain from that 11 month figure is that Sharecare is rapidly scaling revenue, with the first 11 months of 2012 up more than 120% over the numbers achieved for the FULL 12 MONTHS of 2011. And while the loss increased significantly as well, the overall growth trajectory looks very similar to many other companies that have recently gone public or filed to go public (including Rally Software (Nasdaq: RALY), Marketo, ChannelAdvisor, etc.) before reaching profitability. An excellent article was published a couple of weeks ago describing the resurgence of the IPO market for such smaller offerings. Additionally, many commentators have noted that the passage of the JOBS Act and market forces have made it more attractive generally for smaller companies that have not reached profitability yet to go public and it appears that many of them are being very well received by investors. We also note that many of these offerings fall squarely in that $350-400m after market trading market cap range that some were suggesting for Sharecare before the huge spike in revenue growth at Sharecare. Given investor's appetite for deals of this size and nature combined with Sharecare's growth and need for currency to continue to acquire complementary assets we expect to see Sharecare go to market with an IPO over the next 12 months. Additionally, given the retail demand for shares of companies at similar stages of development, we wonder what kind of reception a top health care / social media play with backing from Oprah Winfrey, Dr. Mehmet Oz, Discovery Communications (NASDAQ: DISCA), Hearst Communications, Sony (NYSE: SNE) and WebMD (NASDAQ: WBMD) founder Jeff Arnold might receive.
Could Sharecare's growth and bevy of high profile backers result in an aftermarket trading valuation in excess of $500 million? If that occurred, Remark's 10.8% stake in Sharecare would be worth $54 million, or $7.60 per share based on current shares outstanding. While the Sharecare valuation may prove to be higher or lower than the numbers discussed above, there is no question that at this point it represents a very significant part of the value that will ultimately be realized by the owners of Remark Media shares.
Will Dimespring become the Sharecare of Personal Finance?
We would be remiss if in our discussion of Sharecare we failed to remind investors that the technology and platform development behind the Sharecare concept is still owned by Remark and the company is well into the process of making a personal finance version of the Sharecare social media platform at www.Dimespring.com. Given the advertising driven model and the higher ad rates that usually are paid by advertisers in the personal finance sector (read - Etrade, Ameritrade, Progressive, Geico, Nationwide, Wells Fargo, Bankamerica, Countrywide, etc.), it is conceivable that a personal finance focused version of the Sharecare model could grow to be even more valuable than Sharecare may prove to be. Such potential could not be reflected in the numbers reported by Remark to date, as the first full quarter of its Dimespring and Banks.com assets live with TheStreet.com's Google advertising to monetize it will be reflected in the first quarter of 2013 that ended three weeks ago. It is for this period that investors will begin to get the first "taste" of the potential for this model that Remark has refined and is now applying to the personal finance vertical.
In summary, we find it remarkable that Remark shares have traded as low as they have despite the significant and rapidly growing value of its assets. While it may have been overlooked for much of the last year, we believe that the emergence of Dimespring and the Initial Public Offering of Sharecare in the next 12 months could make the very low trading range of Remark shares over the last 12 months even more remarkable. We believe that Remark shares will prove to be worth a multiple of their current price over the next 12 months as investors begin to appreciate the latent value of these assets.